By Regina Stracqualursi
Sin taxes are taxes placed on activities or goods deemed harmful to society, such as cigarettes, alcohol, and gambling. This type of tax can reduce the overall consumption of harmful goods and activities, while still serving as revenue for the government.
“It is designed to generate revenue from something that might have a negative cost on society,” said Thomas Shohfi, assistant professor in the Lally School of Management at Rensselaer Polytechnic Institute, who recently led research that found that such taxes have negative consequences on those not paying them. The study builds upon Shohfi’s previous work utilizing alternate data sources to gain new insights.
Conducted in collaboration with researchers from Arizona State University and North Carolina State University, the research zeroed in on the taxicab market in New York City, looking at ride-level data from a period of time before and after the federal tax on cigarettes was raised, and found that riders, in turn, faced other penalties, such as being charged a higher rate.
“One of those unintended consequences, especially with excise taxes, is the potential for people to believe the targeted taxes are unfair, to believe someone else should pay for it, and to change their behavior to make others pay for the increased tax,” said Shohfi.
The research provides insight into why the fraudulent behavior takes place in the wake of sin taxes, including the notion that such taxes are unfair and the consequential desire for people to want someone else to pay for it. “People feel like they’re negatively impacted by this so they take it out on other people,” said Shohfi.